October West Texas Intermediate crude oil futures are in a position to finish higher for the week after a weak trade on Monday. The weakness at the start of the week was fueled by follow-through selling related to the escalation of trade tensions between the United States and China from August 23. By the end of the week, a cooling-off between the two economic powerhouses was one of the factors underpinning the weekly higher close.
The market was also supported by two huge weekly inventory drawdowns as reported by the American Petroleum Institute (API) on Tuesday and the U.S. Energy Information Administration (EIA) on Wednesday. Both events served as proof that the OPEC-led production cuts are working to trim U.S. support despite record output.
Trade Talks Resume
The United States and China verified on Thursday that they will resume trade talks on September 4. The news provided some relief to traders worried about a plunge in future demand growth.
President Trump said on Thursday the U.S. and China are set to have trade talks “at a different level.” Earlier in the day, China softened its stance saying it’s willing to resolve the trade war with a “calm attitude” and indicated it won’t retaliate against Trump’s new tariff threat immediately. China also said the Chinese and U.S. trade delegations have maintained “effective” communication.
U.S. Energy Information Weekly Storage Report
Crude oil prices spiked higher on Wednesday after the EIA reported a surprisingly strong inventory drawdown. The news actually confirmed a similar number in the American Petroleum Institute’s (API) weekly inventories report late Tuesday afternoon.
According to the EIA, crude oil inventory fell 10 million barrels during the week ending August 23. Analysts were looking for a 2.1 million barrel draw.
U.S. gasoline stocks fell by 2.1 million barrels versus a forecast of a 388,000-barrel drop. Distillate inventories fell by 2.5 million barrels for the week, while inventories at Cushing fell by 2.4 million barrels.
No Talks between US and Iran
Earlier in the week, crude oil prices fell after French President Emmanuel Macron pushed for a meeting between the U.S. President Trump and Iranian President Hassan Rouhani at the G7 Summit in France.
However, renewed hopes for talks between Trump and Rouhani were dealt a blow on Tuesday when Rouhani said there would be no meeting until economic sanctions imposed on Tehran are removed.
“No positive developments will happen in Iran-US ties without them lifting sanctions and abandoning their hostile actions,” Rouhani said in a televised speech – a day after Trump said there was a “really good chance” the men could meet in the coming weeks.
“We will change our behavior towards those who imposed sanctions on the Islamic Republic of Iran and committed economic terrorism, if they show remorse,” Rouhani added.
Continued tensions between the United States and Iran are viewed as supportive for crude oil prices.
Some traders are talking about Hurricane Dorian’s impact on oil prices as it races toward the Atlantic Coast of Florida. At this time, it’s a non-event because there are no oil platforms on the East Coast of Florida.
Oil companies will begin to take the appropriate steps to secure their oil platforms and to protect workers if the hurricane crosses over Florida and enters the Eastern Gulf of Mexico next week.
Traders should keep an eye on events surrounding the hurricane, particularly where it makes landfall. Most of the time, a hurricane threat to oil production outside of Louisiana and Texas causes a short-term spike in prices because of a shutdown. There could be long-term ramifications if there is major damage.
As of late Friday morning, the weather forecasts have not confirmed its direction.
Weekly Technical Analysis
Weekly October WTI Crude Oil Technical Analysis
Swing Chart Technical Analysis
The main trend is down according to the weekly swing chart. A trade through $50.50 will signal a resumption of the downtrend. A move through $60.93 will change the main trend to up.
The minor trend is also down. A trade through $57.40 will change the minor trend to up. This will also shift momentum to the upside. A trade through $52.96 will signal a resumption of the minor trend.
The short-term range is $44.84 to $65.62. Its 50% to 61.8% retracement zone at $55.23 to $52.78 is support. The formation of three lows inside this zone indicates that aggressive counter-trend buyers have been coming in on the breaks.
The main range is $74.04 to $44.84. Its retracement zone at $59.44 to $62.89 is resistance. Since the trend is down, sellers are likely to show up on a test of this zone. Overtaking it at some point, however, will put the market in a bullish position.
Swing Chart Technical Forecast
Based on last week’s price action, the direction of the October WTI futures contract the week-ending September 6 is likely to be determined by trader reaction to the short-term 50% level at $55.23.
A sustained move over $55.23 will indicate the presence of buyers. If this generates enough upside momentum then look for a breakout through the minor top at $57.40. This could trigger a further rally into another minor top at $58.86 and the main 50% level at $59.44.
Buyers have been particularly sensitive to positive trade talk develops and declines in inventory. Both factors are likely to continue to drive the price action this week with hurricane production disruptions the bullish wildcard.
A sustained move under $55.23 will signal the presence of sellers. This won’t necessarily be a bad development if buyers step in to stop any weakness from taking out $52.78. Remember the longer the support base, the better the rally. However, if $52.78 fails then look for a potential acceleration into $50.50.
Both the technical picture and the positive shift in investor sentiment should be supportive the week-ending September 6. A potentially bullish wildcard will be the hurricane continuing at full strength into the Gulf of Mexico. A potentially bearish wildcard will be an ill-advised tweet from President Trump that pushes China away from the negotiations table.